This document provides an outlook on the 2011 real estate market and recovery from the recession. It finds that while the recession is officially over, the recovery will be slow and uneven across states. Housing demand and prices are expected to gradually increase through 2011 as the economy and job market improve. Access to financing remains challenging due to tighter lending standards. The recovery is projected to follow a gradual "gravy boat" shape rather than a quick snapback. Younger generations are delaying homebuying, and demand from retiring baby boomers may be delayed until after 2015.
3. “GREAT RECESSION IS OVER”1
JOBS KEY TO SUSTAINED RECOVERY
Recovery Status Map by State
September 2010
1National Association of Business Economists; Moody’s June 2010
2 06-11462.05
4. UNEMPLOYMENT CONTINUES TO BE THE GREATEST IN
THE SOUTHEAST AND IN THE WEST
Unemployment Rate by State
June 2010
SOURCE: Bureau of Labor Statistics
3 06-11462.05
5. NATIONAL MARKET OUTLOOK
Economists’ projections for U.S. economic growth were scaled
back in August 2010
• Forecasters are still projecting steady, slow growth without a
double dip recession
U.S. sales of homes bottomed out in 2008 and began increasing
in 2009, and should continue to increase based on a recovering
economy
• New residential construction bottomed out in 2009 and new
sales will slowly improve in 2011
Limited access to financing creates challenges
Consumer confidence a major issue (down from August)
Restructuring of household budget may lower % spent on
housing.
4 06-11462.05
6. ACCESS TO FINANCING CREATES CHALLENGES
FOR ECONOMIC RECOVERY
Access to financing blunts impact of low prices and
interest rates
• Credit scores need to be 740 +/-, up from 680
• 10% more Americans with credit scores below 600
• Americans with mid-range credit scores 650 to 700 have
decreased, difficult for them to access low i-rate credit
• 58% of Americans have a credit score above 700, but even
people from 700 to 750 subject to greater scrutiny
Other challenges to obtaining financing:
• Changing borrowing requirements
– Down payments (20% down), total debt ratios (36%)
– Unemployment
SOURCE: Americans’ Credit Scores Sink to New Lows, Associated Press July 2010; Six New Hurdles for Home Financing, Forbes May 2010;
5 06-11462.05
7. SLOW PACED RECOVERY FOR MOST REAL
ESTATE MARKETS IN 2011
Multifamily Rental (Q3 2010)
Residential For-Sale (Q1 2011)
Land (Q1 2011)
Industrial (Q1 2011)
Hospitality (Q3 2011)
Retail (Q3 2011)
Recovery (in Office (Q3 2011)
parenthesis) defined
2nd Home/Resort (2012+)
as month-over-month
increases in pricing
and demand
Recovery Upturn Mature Downturn Recovery
SOURCE: RCLCO
6 06-11462.05
8. SHAPE OF THE RECOVERY – GRAVY BOAT
RCLCO PROJECTIONS FOR RESIDENTIAL REAL ESTATE RECOVERY
PEAK
2006
2005
NORMAL
2007
2014
2001
2008
RECOVER
TROUGH 2012
2009 2010
1 New normal likely to be on a similar growth pattern as early 2000’s before the boom
2 Assumes a functioning debt market is in place
7 06-11462.05
10. How Has the Recession Impacted Demand?
9 06-11462.05
11. A PERMANENT SHIFT IN PSYCHE?
Homeownership and Rental Rates
1988 to 2010
Rental rates have
increased as a result of
foreclosures and
people delaying home
purchases
This downturn may
have created a
fundamental shift in
how people view
homeownership:
New Fannie Mae
survey finds 67% of
Americans believe
housing is a safe
investment – down
from 83% in 2003.
SOURCE: NAHB, August 2010
10 06-11462.05
12. DOWNTURN IN MARKET LIKELY TO DELAY INCREASE IN
RETIREMENT DEMAND UNTIL AFTER AT LEAST 2015
Baby Boomers Estimated Rate of Retirement
2008 to 2030
4,400,000
4,200,000
4,000,000
3,800,000
3,600,000
3,400,000
3,200,000
3,000,000
At Age 62 At Age 65
SOURCE: National Center for Health Services,
NOTE: Based on an average retirement age of 62 according to the U.S. Census, Age 65 based on Metlife Middle Boomers Survey
11 06-11462.05
13. THE IMPACT OF GEN Y ON HOME BUYING WON’T CHANGE
DRAMATICALLY UNTIL 2016 TO 2018
Gen Y Estimated at Home Buying Age
2008 to 2030
4,400,000
4,200,000
4,000,000
3,800,000
3,600,000
3,400,000
3,200,000
3,000,000
At Age 28 At Age 31
SOURCE: National Center for Health Services,
NOTE: Based on an average retirement age of 62 according to the U.S. Census, Age 65 based on Metlife Middle Boomers Survey
12 06-11462.05
14. NEW CONSTRUCTION LOT SIZE HAS DROPPED DRAMATICALLY IN
THE LAST 10 YEARS
HOW FAR WILL IT GO?
Median Lot Size (Acres)
1/2
4/9
2/5
Acres
1/3
2/7
1/4
1/5
1999 2001 2003 2005 2007 2009
New Construction (4 Yrs) Owner Occupied Renter Occupied
SOURCE: American Housing Survey
13 06-11462.05
15. NEW HOME SIZE HAS DROPPED, AS IN LAST RECESSIONS
WILL IT STABILIZE, DROP, OR INCREASE?
Median SF of Floor Area in New Single-Family Houses
2,400
2,200
2,000
1,800
1,600
1,400
1,200
1,000
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
SOURCE: U.S. Census Bureau
14 06-11462.05
16. BASED UPON PAST PREFERENCE, HOME SIZE WILL
LIKELY STABILIZE, NOT CONTINUE TO DROP
Preferred Home Size
3,000
2,500
Average
2,000
1,500
1,000
500
0
SOURCE: Associated Designs, Homes from the Heart Annual Survey, Trulia-Harris Interactive Survey conducted July 22-26, 2010
15 06-11462.05
17. OBSERVATIONS FROM RCLCO MPC (Master
Planned Community) SURVEY
Smaller, denser units at affordable prices. Over time, house prices and sizes will
likely come up, and densities may go down
Trends that will prevail:
Expect preference for living near jobs, shopping, etc.
Smaller households, later marriages, fewer children, more traditional
family households
More ethnically diverse—Latino, Asian, Indian (majority of family market
will NOT be traditional caucasian families)
To sell second homes, prices must drop 40% from 2007 peak. Strong velocity in
“A” projects/locations at these prices
Capital is available for primary housing MPCs, both debt and equity, but is very
scarce for resort and second home
Very few attractive acquisition opportunities today
Flood of opportunities to purchase distressed deals at bargain prices 1990’s style is
unlikely
Honest unleveraged IRRs for long term projects in mid-teens, at best
16 06-11462.05
18. IDEAS FOR 2011
Revisit your segmentation model; explore new niches and innovative product types
Attached: Consider: 25’ Towns, One- or Two-Story Duplex; Big House/Paired
Detached: Consider very small lot product as replacement for attached; 30’ SFD
small; Zipper lots from 45’ to 90’
Use your prime location to push smaller, clustered product types where buyers will
trade off size for amenities
Coordinate marketing efforts with resident groups, builders, realtors, businesses,
and institutions
Create events that attract residents and friends to gain visibility and traffic
Repeating “legacy” activities and events year round
Festivals, art shows, market days, etc., draw traffic into the community
Link philanthropy with marketing – walks, races, cycling events, volunteering
Increase internet advertising and web-based marketing via social networking vs.
more generic internet/web comments—create a Facebook page if you have not yet
17 06-11462.05